Economic Impacts of Public Higher Education Funding in Massachusetts
UMass Amherst Professor Michael Ash and School of Public Policy alum Shantel Palacio published a study in 2012 titled Economic Impact of Investment in Public Higher Education in Massachusetts. The study looks at the short run (over a year) and long run impacts of increasing state spending towards public higher education. Using Input-Output Analysis, the authors estimate the number of jobs created with $800 million of additional spending under three different scenarios:
1. $800 million is spent on higher education. The funds are split between new construction costs and operating expenditures.
2. $800 million is spent on higher education. All funds go to operating expenditures.
3. $800 million is spent on the construction and operation of casinos.
4. $800 million is spent on healthcare services.
In this case, Options 3 and 4 represent opportunity costs of using the full $800 million for higher education. If more jobs are created and the jobs are of similar or better quality in either of the first two options than in the casino or healthcare options, then spending the $800 million on higher education is the best allocation compared with the alternatives presented.
As the table above shows, the second higher education create more jobs than apportioning the $800 to casinos or health, and the first option is only slightly less than the jobs created from increasing casino operation spending. The effects of a $800 million tax cut are also shown. No matter how you slice it, tax cuts produce only half as many jobs as $800 million in new spending.
The quality of the new jobs created can be assessed via the average wage, range of wages, and the national unemployment rate. Jobs in higher education average close to $40,000 with a range of about $40,000 and an unemployment rate of 4.1 percent. Construction jobs have a higher average wage and lower bound, but, and keep in mind the data is from 2010, the unemployment rate is at an astounding 20.6 percent nationally. Casinos and Health jobs both have lower annual wages and a larger difference between the higher and lower bounds than in higher education.
Thus, it is safe to conclude that spending the $800 million in higher education is the most worthwhile investment. Additional spending in higher education creates more jobs than the alternatives and the new jobs created are relatively similar or better in quality.
Next, the study explores combining scenarios 1 and 2 and taxing people with incomes over $50 thousand to find the net employment effect of increasing public higher education spending
In the first two years, half of the new funds is divided between construction and operation spending. After the second year, all the $800 million is spent on operations. The difference between the jobs created via construction and operation and the jobs loss via taxation produces a positive net employment. This means including new taxation, increasing spending on public higher education by $800 million in Massachusetts can create create 8,000 jobs.
Furthermore, by looking at the average incomes and demand for government programs of college graduates, the fiscal impact of someone witch a bachelor’s degree can be calculated too.
Because college graduates have higher incomes than high school graduates, college graduates pay on average $131,705 more than high school graduates in state and local taxes. Adjusted to the present value (because people value stuff more today than in the future), the average adjusts to $71,261. Also, college graduates are less likely to need as much support from welfare and other government programs. On average this amounts to $66,130 ($34,304 in present value terms). Thus, in total the state will have $197,835 ($105,556 present value) per college graduate of new revenue and freed up fiscal space. The cost paid by the state for a degree at a public institution of higher education is $53,392 ($49,616 PV). So by subtracting the fiscal benefits of a college graduate by the public cost of a degree, the net effect on the state budget is positive at $130,595 ($48,560 PV).
Additionally, increasing state support to decrease tuition can attract more students to public colleges and universities.
If the original $800 million was spent so $400 million goes to a per student 30% tuition reduction and the other $400 million goes to accommodating for expanding enrollment, full time enrollment increases by 40 percent!
In short, the authors look at the effects of increasing state appropriations to public higher education with respect to different aspects of the Massachusetts economy. This study did not look a the economic costs of student debt — current Massachusetts borrowers are expected to lose over $100 billion in future wealth loss over their lifetimes. What can be concluded from the research above is that investing in public higher education is one of the most rewarding the investments Massachusetts should take. Policymakers especially should take more notice on both is direct economic and fiscal benefits and should enthusiastically explore additional ways to support public higher education
